Weekly Outlook Ending on 5th November 2016
U.S dollar remains higher even after neutral job data.
The dollar edged higher against the other majors currencies on Friday, after a string of U.S. data painted a mixed picture of the economy, while investors still remained cautious ahead of next week’s U.S. presidential election. EUR/USD fell 0.12% to 1.1091, pulling away from Thursday’s three-and-a-half week high of 1.1128.The U.S. Labor Department said the economy added 161,000 jobs in October, disappointing expectations for an increase of 175,000. However, September’s figure was revised to a 191,000 gain from a previously estimated rise of 156,000.The unemployment rate ticked down to 4.9% last month from 5.0% in September, in line with expectations. Data also showed that U.S. average hourly earnings rose 0.4% in October, exceeding expectations for an uptick of 0.3%.A separate report showed that the U.S. trade deficit narrowed to $36.44 billion in September from $40.46 billion in October. Analysts had expected the trade deficit to hit $37.80 billion in September. Meanwhile, investors remained cautious after the FBI said last Friday that it would review more emails related to Hillary Clinton's private email use while she was secretary of state. The news sparked fresh uncertainty over Mrs. Clinton’s election prospects ahead of the November 8 vote, amid fears over the implications of a victory for Republican candidate Donald Trump.
Speculators increased positive bets on the U.S. dollar for a sixth straight week, with net longs touching their highest in more than nine months, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday. The value of the dollar's net long position advanced to $20.78 billion in the week ended Nov. 1, from $18.81 billion the previous week. This week's net long dollar position was the largest since late January. Over the last few months, the dollar's positive momentum has been driven by expectations the Federal Reserve will hike rates next month. An October U.S. non-farm payrolls report on Friday was generally viewed as positive overall despite coming out lower than expected with 161,000 jobs created. "The October jobs report was generally better than expected despite the headline miss, and does not contain anything to deter the Fed from raising rates in December as we and many investors presently expect," said Marvin Loh, senior global markets strategist at BNY Mellon in Boston. The chances of a rate hike increased further and currently point to an 80 percent chance that the Fed raises the funds rate by 25 basis points in six weeks.
Euro post gains on weekly session, after U.S economic data.
Euro rose against the U.S. dollar on Friday, after the release of downbeat U.S. economic reports sparked fresh concerns over the strength of the economy, dampening demand for the greenback. EUR/USD hit 1.11369 during U.S. morning trade, the pair’s highest since Wednesday; the pair subsequently consolidated at 1.1350, gaining 0.41%.The pair was likely to find support at 1.1233, Thursday’s low and a two-and-a-half week low and resistance at 1.11090, Wednesday’s high. In a preliminary report, the University of Michigan said its consumer sentiment index fell to a seven-month low of 89.7 in April from 91.0 the previous month. Analysts had expect the index to rise to 92.0 this month. The report came after official data showed that U.S. industrial production decreased by 0.6% last month, worse than expectations for a decline of 0.1%. Manufacturing production declined by 0.3% last month, worse than forecasts for a 0.1% increase. Separately, the Federal Reserve Bank of New York said that its general business conditions index improved to 9.65 this month from a reading of 0.62 in March. Analysts had expected the index to rise to 2.21 in April. The currency pair traded in a tight range between 1.1234 and 1.1295 before settling at 1.1265, down 0.0014 or 0.12% on the day. The dollar has closed higher against the euro in three consecutive sessions and four of the last six, rallying slightly from five-month lows. The optimistic data followed the release of the Federal Reserve's Beige Book on Wednesday afternoon, which provided indications that domestic wages are starting to increase while the prolonged downturn in oil production could be on the verge of coming to an end. Last week, the U.S. Energy Information Administration (EIA) said weekly crude production fell by 31,000 bpd to 8.977 million bpd. With the sharp declines, U.S. output dipped below 9.0 million bpd for the first time since October, 2014.
Pound turned Green after as Brexit fears ease.
Sterling traded close to a four-week high on Friday and was heading for its best week since March, having jumped after England's High Court put a spanner in the government's plans to forge ahead with Britain's exit from the European Union. The battered pound has clawed back 2.5 percent against the dollar this week, with Thursday's court ruling adding to a run of political and economic developments perceived as positive by investors worrying over the economic fallout of Brexit. The pound surged to a four-week high close to $1.25 on Thursday after the court's decision that the government needed parliamentary approval to trigger Article 50, which will formally start the process of exiting the EU. On Friday it remained close to that high at $1.2480.Investors are hoping that Britain might now be able to avoid an economically disruptive "hard Brexit", reckoning lawmakers - a majority of whom supported staying in the EU in June's referendum - will now be emboldened and will push for Britain to keep access to Europe's single market. CMC Markets analyst Michael Hewson said political factors were dominating, with sterling also benefiting this week from a dollar weakened by fears that Donald Trump could win the U.S. presidential election. "I often think markets are a bit like men - they can only focus on one thing at a time," he said. "We're seeing a bit of a relief rally now that the worst case scenario of a unilateral 'hard Brexit' has been deferred, and markets can start focusing on other factors (like) the U.S. presidential election. “The pound started climbing earlier in the week when Mark Carney said he would stay as head of the Bank of England for an extra year to help with a smoother Brexit negotiation process. It was further boosted on Thursday by the BoE's decision to scrap its plans to cut interest rates and raise its forecasts for 2017 growth and inflation, and also by robust data from Britain's services sector. But despite this week's rebound, sterling is still 16 percent lower against the dollar than where it was before June's EU referendum. Against the euro, it is 14 percent weaker and was trading at 88.90 pence on Friday.
Gold erase October losses still futures dropped in weekend sessions.
Gold prices moved lower on Friday, but losses were expected to remain limited as markets were jittery ahead of a U.S. jobs report due later in the day and the U.S. presidential election next week. On the Comex division of the New York Mercantile Exchange, gold futures for December delivery were down 0.29% at $1,299.95.The December contract ended Thursday’s session 0.37% lower at $1,303.30 an ounce. Futures were likely to find support at $1,287.30, Thursday’s low and resistance at $1,307.00, Wednesday’s high and a one-month peak. Investors were looking ahead to the U.S. nonfarm payrolls report due later in the day for further indications on the strength of the job market, after U.S. payroll processing firm ADP reported on Wednesday that non-farm private employment rose less than expected last month. Meanwhile, investors remained cautious after the FBI said last Friday that it would review more emails related to Hillary Clinton's private email use while she was secretary of state. The news sparked fresh uncertainty over Mrs. Clinton’s election prospects ahead of the November 8 vote, amid fears over the implications of a victory for Republican candidate Donald Trump. Elsewhere in metals trading, silver futures for December delivery dropped 0.78% to. Gold has also erased all of its gains from Monday's surge when it jumped by more than $20 dollars an ounce to hit three and a half week highs. Despite the recent downturn, the precious metal is still up by more than 15% since January 1 and is on pace for one of its strongest opening halves of a year in more than a decade. On Thursday, the Monetary Authority of Singapore (MAS) lowered the appreciation rate of the Singapore Dollar's nominal effective exchange rate to zero, marking the first time the central bank brought its policy band out of positive territory since 2008. In a statement released after the meeting, the MAS insisted that the policy shift only removes gradual appreciations of the effective exchange rate and were not done to "depreciate the Singapore dollar."
Crude in fresh 5-week lows.
U.S. oil prices edged down to fresh five-week lows on Friday, as record high U.S. supply data continued to weigh, as well as doubts over the possibility of a production freeze deal by major oil producers. U.S. crude futures for December delivery were down 0.11% at $44.61 a barrel, just off a fresh five-week low of $44.30 a barrel hit overnight. On the ICE Futures Exchange in London, the December Brent contract slipped 0.28% to trade at $46.20 a barrel, close to the five-week trough of $45.97 a barrel hit earlier in the session. Crude prices were hit after the U.S. Energy Information Administration said that crude oil inventories rose by 14.4 million barrels last week, much more than the expected crude-stock gain of 1.0 million barrels. The commodity also remained under pressure amid growing skepticism over the implementation of a planned deal by OPEC to limit production. OPEC reached an agreement to cap output to a range of 32.5 million to 33.0 million barrels per day in talks held in Algeria in late September. However, the 14-member oil group said it won’t finalize details on individual output quotas until its next official meeting in Vienna on November 30.
Stocks & Indices
U.S. stocks and S&P 500 in red line.
It was negative week for U.S. equities. Starting with the U.S. stocks; Dow Jones lost 260 points and lost 1.45%. Nasdaq Composite loss 2.93% and 148 point. S&P 500 lost 43 points and 2.06% for the week.
Coming to European counterparts, UK’s FTSE 100 losses 288 point and 4.30%. German DAX 30 also loss 423 points and 4.12%. Additionally French CAC 40 loss 159 points and 3.63% on the weekly basis.
In commodities Gold added $27 and 2.07% while Crude Oil lost $4.21 over the week.
Euro gains 1.35% over the week while Yen gain 1.90 %. Pound also gains 1.67% and dollar index also gain 0.28% on this week.
Note: Here all the currencies are measured in percentage against the U.S. dollar.